In Case You Missed It: Charts of the Week

By Mark Masterson on October 21, 2022

It has been said “a picture is worth a thousand words.”  With that in mind, below below are a few of the most important or interesting charts from the past week…..

Charts from this past week:

—————————————————————————-Look at how closely the rising dollar in yellow, is tracking the rising bond yields in blue, and the tightening financial conditions in white…..

@TaviCosta

Remember last week I posted the charts of the “magazine covers” that may signal a change in markets.

Last week it was the “Unstoppable dollar”.  The hope was that it would market a point in time where the dollar could now reverse lower.

Here is an example from Barron’s from August of last year…..Right before tech began is massive decline of 2022….

“The Unstoppable Rise of Big Tech” — August 23, 2021

Barrons

This is a record.

10 year treasury yields have risen for 11 straight weeks.

Last time we were close was 1978…..

Time for a change?

A possible sign of market being a bit “offsides” allowing for a bear market bounce……

Short interest seems a bit too high according to this chart.

Remember, if shorts have to cover, markets go higher….

Many charts of interest today….

The VIX (fear index) is at an important point here……

If it breaks lower (like it is today) it could point to another rally in equities…..

And….

Sentimenttrader keeps reporting on how negative the sentiment is out there.  Remember, sentiment is a contrarian indicator – so extreme bearishness has the potential to be bullish….

Lets take a look:

This week, the Panic/Euphoria Model declined to one of the lowest levels in nearly 30 years, firmly in Panic territory.

My chart below shows the S&P 500 in blue, and the dollar in red/black.  The highlighted areas are dollar moves.  Every stock rally coincided with a down dollar move.

So – its important to watch the dollar and yields to determine if this rally has legs like the July bear market rally.

Right now, the futures are up 600 points, but the dollar is flat, and yields are modestly higher.  That makes me a little nervous that this rally may fade, but the day is still early.

CEO’s are getting worried.

Below is the CEO confidence index per @Conferenceboard…..It fell again in 4Q22 and is now at lowest since 2007-2009 recession …

98% of CEOs said they were preparing for a U.S. recession; only 5% reported business conditions were better today than 6 months ago

Today is the anniversary of the 1987 stock market crash.

Imagine today if we saw a crash of 22%?  Back then, that was only a 508 point drop.

I looked at this list and the Covid days in March of 2020 jumped out to me.

3/12/2020 we saw a -10% day. 

How about the 3/16/2020 down 12.9% day? 

Do you remember those? 

It seems like a decade ago to me – but wow, what a terrible few days that was for markets.

As mentioned above – here is a picture of bond yields in the US……

They keep pressing higher…..

Strategas

Yesterday President Biden made it official that he is going to keep releasing barrels of oil from the SPR.

Here is how that is looking currently……

SPR releases over the last 11 months have totaled just shy of 200mm barrels so far, taking the SPR to just above 400mm barrels.

Currently the GDPNow model from @AtlantaFed is still hanging in there … estimate for 3Q22 as of yesterday firm at +2.9% (q/q ann.) … inventory component has jumped and is now net positive contributor (albeit marginally)

While the third quarter may deliver positive GDP, expectations for the next few quarters are pretty negative.  In fact, a recession is looking almost guaranteed by the Conference Board…..

U.S. Recession Probability Model from  @ConferenceBoard rose to 96% as of August (model shows probability U.S. enters recession within next 12 months)

Meanwhile, here in the US – yields keep pressing higher and higher.

The 10-year yield hit the highest level since June of 2008 yesterday at 4.23%.

This is bad news for home buyers as mortgage rates closely track the 10-year yield.

Average 30-year fixed mortgage rate rises to 7.37%.

Considering many home buyers purchase based on a payment they can afford – the below chart is troubling.

Mayhem4markets

Equity market sentiment remains subdued.

Sentiment like this creates the environment for a bear market bounce.

What is missing is a catalyst.  Perhaps a move lower in yields or the dollar for a week or two would do the trick…..

Dumb money in red pretty pessimistic, while smart money in blue is quite optimistic here…..

Sentimenttrader.com

Short term view of the dollar…..

This is a pennant forming.

Will it break out higher or lower from here?

Unfortunately, this looks bullish to me -which indicates it might break out higher.

That may create more volatility in the coming week(s)

Let’s hope a catalyst emerges to break it down from here.

The 10 year yield has been relentlessly moving higher.

You can see it is now breaking higher and is quite overbought.

Capital markets need the surge in yield to pause and digest.  This gap higher circled on the chart from yesterday will get another one today. That suggests folks are starting to panic sell bonds, pushing the yields higher.  We may need a catalyst to calm down the rise in rates.

No – the below chart is not some tech stock that has been hit hard this year….its the ETF for the 20 year treasury bond TLT.

It is down over 35% this year as yields surge higher.  Its now back to 2014 levels.

This is quite extreme, and poses a risk if allowed to continue.  I suspect many pensions are invested in longer term treasury bonds.  They are seeing this kind of performance in those bonds year to date.